The new allocation is part of the system's new absolute-return asset class, which has a target allocation of 10%. The system reduced its domestic equity allocation to 20% from 30% in February to fund the allocation.

Along with two separate $50 million allocations to multistrategy manager Arrowhawk Capital Partners in early 2010, the system's absolute-return asset class is about 90% to 95% filled out, Mr. Carlson said.

He said the system does not plan to actively search for additional absolute-return investments in the near term but would consider investing in “compelling absolute-return ideas.”

The system does have a long-term goal over the next five to seven years to “build off these (hedge fund-of-funds) relationships and start doing some direct (hedge fund) investing.”

“The main reason (for the new absolute-return strategy) is to reduce volatility in the portfolio overall and reduce our dependence on U.S. equity-only,” he said. “Going forward, you're going to have to be more dynamic and more diversified to get our expected rate of return of 7.75%. Absolute return helps us maintain our expectations but lowers our risk.”

The system also hired Columbia Asset Management and Loomis Sayles to each run $215 million in high-yield fixed income and Manulife Asset Management to run $140 million in global fixed income.

Mr. Carlson said that as part of the new asset allocation, the system changed its 20% allocation to core fixed income to 10% core, 5% opportunistic high-yield and 5% global fixed income. He said all three managers are opportunistic.